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Section 10.1 Simple Interest

Section 10.1 Simple Interest. The amount deposited in a bank or borrowed from a bank is called principal . The amount of interest paid is usually given as a percent of the principal. The percent used to determine the amount of interest is called the interest rate . . Simple Interest.

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Section 10.1 Simple Interest

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  1. Section 10.1 Simple Interest The amount deposited in a bank or borrowed from a bank is called principal. The amount of interest paid is usually given as a percent of the principal. The percent used to determine the amount of interest is called the interest rate.

  2. Simple Interest • Interest paid on the original principal is called simple interest. • Simple Interest Formula I = P·r·t where I is the simple interest, P is the principal, r is the interest rate, and t is the time period.

  3. Simple Interest Example Interest rates are most commonly expressed as annual interest rates. EXAMPLE 1. Calculate the simple interest earned in one year on a deposit of $1000 if the annual interest rate is 5%.

  4. CHECK YOUR PROGRESS Calculate the simple interest earned in one year on a deposit of $500 if the annual interest rate is 4%.

  5. Example 2 Calculate the simple interest due on a three-month loan of $2000 if the annual interest rate is 6.5%. CHECK YOUR PROGRESS Calculate the simple interest due on a four-month of $1500 if the interest rate is 5.25%.

  6. EXAMPLE 3 Calculate the simple interest due on a two-month loan of $500 if the interest rate is 1.5% per month. CHECK YOUR PROGRESS Calculate the simple interest due on a five-month loan of $700 if the interest rate is 1.25% per month.

  7. Example 4 Calculate Simple Interest Calculate the simple interest due on a 45-day loan of $3500 if the annual interest rate is 8%. CHECK YOUR PROGRESS Calculate the simple interest due on a 120-day loan of $7000 if the annual interest rate is 5.25%.

  8. Example 5 Calculate the Simple Interest Rate The simple interest charged on a six-month loan of $3000 is $150. Find the simple annual interest rate.

  9. Future or Maturity Value The future or maturity value formula for simple interest is A = P + I Where A is the total amount after the interest, I, has been added to the principal, P. EXAMPLE 6 Calculate a Maturity Value Calculate the maturity value of a simple interest, eight-month loan of $8000 if the annual interest rate is 9.75%.

  10. Example 7 Calculate the maturity value of a simple interest, three-month loan of $3800. The annual interest rate is 6%. CHECK YOUR PROGRESS Calculate the maturity value of a simple interest, one-year loan of $6700. The interest rate is 8.9%.

  11. Example 10 Calculate a Dividend Yield A stock pays an annual dividend of $1.75 per share. The stock is trading at $70. Find the dividend yield. CHECK YOUR PROGRESS A stock pays an annual dividend of $.82 per share. The stock is trading at $51.25. Find the dividend yield.

  12. Example 11 Calculate Interest Payments on a Bond A bond with a $10,000 face value has a 3% coupon and a five-year maturity date. Calculate the total of the interest payments paid to the bondholder.

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